Somewhat belatedly, Scottish theatre critics have added young people’s theatre to their list of categories for annual awards. It is a fair guess that judges new to the genre will be pleasantly surprised by the quality of work on show.

In no sense is theatre for young people a children’s menu in the performance restaurant. On the contrary, it has some advantages over adult offerings: its raw, honest audiences never condone mediocrity with conventional politeness; its writers and directors are denied the easy option of the sensational; its poverty means that artists must use the art of theatre whereas better-funded ones can fall back on theatre arts.

These advantages were brought home at this year’s Bank of Scotland Children’s International Theatre Festival in Edinburgh, produced by Imaginate. Director Tony Reekie once again assembled a clutch of exemplary productions from around the world and mixed in some of the best of Scottish work, which justifiably takes its place among the elite.

Annie Wood, who is now artistic director of the only dedicated children’s theatre in London, the Polka Theatre in Wimbledon, brought back her production of Oscar Wilde’s The Happy Prince.

Although a visit to the Catherine Wheels Theatre Company’s The Story of the Little Gentleman was thwarted by illness in the cast (a particular disappointment after its Lifeboat won the Barclays Theatre Award for the best new show for children and young people in 2002), the Glasgow-based Vanishing Point held the line with Stars Beneath the Sea.

The story, inspired by narratives of adventure and discovery in a book by Trevor Norton, is told from the position of a pioneer deep-sea diver, an early marine archaeologist who learns of an ancient wreck known only to a family of Mediterranean sponge divers. His craving, part academic, part greed to retrieve the treasure of coins and statuary, collides headlong with the wishes of the family, for whom it is the grave of their mother, who was trapped while diving for sponges.

It is a story with mood swings that veers from the wildly comic, when the archaeologist tries out the diving suit on his hapless servant, to the menace of the hostile islanders, to the deeply-felt anguish of the bereaved family.

With this emotional charge and a story-line that carries its audience from Britain to Greece, from bar to beach, from boat deck to seabed, the production needs the resources of either the wealth of cinema or the poverty of children’s theatre. Vanishing Point tells the story with a seemingly easy recourse to whatever language seems best, be it the animation of black theatre, back projection or the physical theatre of actors.

Sandy Grierson, at the centre of the story, always provides a sharp emotional image and the Scottish-based Basque performer Itxaso Moreno, as the sponge diver’s daughter, creates a wildness even with her walk. The cast’s skills allow Matthew Lenton’s impeccable direction to conjure up a landscape (and seascape) on a bare stage, never more brilliantly than in the culminating burial over the wreck site.

Much of the inspiration for Imaginate and for the surging interest in children’s theatre in Europe and North America has to be credited to Denmark, where a generous and daring arts policy, born out of the radical movements of the 1960s, led to huge advances in refining the role of drama for the young. No children’s festival, therefore, is complete without the Danes and this year three companies came, among them Teatret Fairplay, which for more than 30 years has been one of Denmark’s foremost children’s theatre practitioners.

A talking point initiated by Danish children’s theatre is whether it should be targeted at age bands. Teatret Fairplay takes its stand firmly on the side of precisely targeted art work and it aims its ingenious A Word is a Word at three-to six-year-olds.

The story is of two children who invent a game in which they are shopkeepers selling words they keep in boxes. It plays with the size, meaning and emotional attachments of words. For example, anger words are best kept in the box. Can you get the word “hippopotamus” into a small container? Would you blind yourself by looking in the box of “sun”?

Henrik Steen Larsen and Lotte Faarup are engaging performers; he is indolent and languorous, she is sharp and secretive. Their command of English idiom and intonation is dauntingly good, and no act in the festival was likely to lose more in the translation.

The older children in the audience were fascinated by the wordplay and found it hugely funny. Perhaps inevitably, some of the younger ones had tired of the single idea before the end. In the back rows, the parents and other interested parties found it involving and could ponder on a concluding comment from Faarup that “friend” was the most expensive word in the shop, so precious that you could only give it away.

The only non-European company in this year’s festival was the Daredevil Opera Company from Canada, taking a break in Edinburgh and Wales from its extensive tours of North America. Its target audience for Cirkus Inferno is seven-year-olds and upwards but while the seven-year-olds are ecstatic with fear and merriment, everyone else is scratching their chins and wondering just how they do it and whether it is legal.

Jonah Logan and Amy Gordon begin the performance as Lucky and Lady, two latecomers to the theatre, clambering over the seats, showering everyone with popcorn and juice. They end up on a stage already prepared for Rocket Johnny and, in the spirit of lunatics taking over the asylum, play ever more dangerously with the equipment they find around them.

Ms Gordon’s best moments are on the jet-propelled roller skates. “You have to be really good to skate that badly,” said someone nearby. She ends her act playing, singing and tap-dancing to “Ukulele Lady” in a tempo and with glissandos determined by those unpredictable skates.

Mr Logan’s clowning is in the Buster Keaton tradition, where the clown is a curious, guileless child in a world that is irresistibly fascinating and almost always mortally dangerous. He is also a licensed pyrotechnician (which for the comfort of the audience might have been announced at the outset). His duel with the Hound of Hades, when he finds himself chained to the kennel of a fire-breathing monster, is a masterpiece of fear and hilarity and his breakfalls must be among the best in the business.

Of all his props, pride of place has to go to his cleaning machine, a juggernaut that sucks as hard as it blows, in the end managing to bin both the perfomers.

Targeting the top end of the festival’s age range, the 10s and over, is Theater Sgaramusch from Switzerland, which wears the poverty of children’s theatre almost as a hair shirt. Knowing that what ultimately matters in theatre is the images formed in the minds of the spectators, the company intervenes as little as is necessary, providing little or nothing in the way of scenery and costumes, and sometimes narrating the plot in direct speech. The company describes its work as a cabaret performance, but that word has frivolous overtones quite out of keeping with its sombre version of Snow White.

The company’s two artistic directors, Nora Vonder Muhll and Stefan Columbo (who plays a small piano accordion), are joined by Desiree Senn, a cellist and actress, in the telling of a more bloody and cruel version of the tale than Disney would consider, where the Queen commands the Hunter to bring her the still-beating heart of Snow White. The minimalist, intense delivery by the trio, standing in line, only occasionally indulging themselves in the luxury of acting, compelled the attention of the audience, especially those in the back rows.

The back rows were occupied largely by the 130 or so delegates at the festival, mostly people in the theatre business from around the world but also arts and culture officers, of whom no more than 20 were from Scottish authorities. However, one could wish that every local authority sent a delegate to such a significant festival. The companies set an international benchmark for children’s theatre quality and the informal discussions (there is no formal education programme) can help to shape attitudes and develop philosophies.

Mr Reekie does everything he can afford to spread ripples from Edinburgh’s Royal Lyceum and Traverse theatres. Five of the festival companies have arranged tours to follow their performances here, with the Daredevil Opera Company taking their mayhem to the Perth Festival of the Arts, and Theater Sgaramusch playing to audiences in Shetland. Chief among the others, Theater Drak from the Czech Republic is taking The Flying Babies to the Glasgow Tron, the Kaleidoscope Festival in Aberdeen, Eden Court in Inverness, Elgin and Lerwick.

Imaginate, tel 0131 225 8050 www.imaginate.org.uk